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Tuesday, March 3, 2015

Why the U.S. Legacies War on the Gulf Carriers is a Losing Proposition

Tension between the fast growing Middle Eastern gulf carriers (Qatar Airways, Emirates, and Etihad) and the U.S. legacies (Delta, American, and United) has never been higher. The U.S. legacies have alleged that the gulf carriers have received billions in government subsidies, a violation of the open skies agreement between the United States and Qatar and the UAE. The U.S. legacies have asked the White House to review the open skies agreement. In the past decade, the Persian Gulf's big three (Qatar, Etihad, and Emirates) have grown rapidly, expanding into every inhabited continent in the world. The gulf carriers have voraciously eaten into the European market crippling the European legacy carriers. The U.S. Legacies are determined to not to go down the way of the European legacies and are prepared to fight the gulf carriers through the only way they know: asking the U.S. government for help. However, the U.S. legacies have very little evidence of wrong doing and are facing stark opposition from companies and organizations inside the U.S.

The fight between the U.S. legacies and the gulf carriers all begins with an open skies agreement opened between the U.S. and the United Arab Emirates (UAE), where two of the gulf's big three are located (Etihad in Abu Dhabi and Emirates in Dubai), back in 2002. The open skies agreement allowed the gulf carriers to fly to any city in the United States (back in 2002 the gulf carriers where shells of what they are today). The United States has been the global leader in open skies agreements, having opened dozens of agreements with countries all over the world. These agreements have boosted passenger traffic and competition between the U.S. and participating countries. It has been a boon for travelers and the U.S. as a whole. However, all open skies agreements come with one major condition: airlines cannot receive government subsidies so that there is a level playing field between competing airlines. The U.S. legacies allege that the gulf carriers have received billions in government subsidies, thus giving them an unfair advantage. While all three gulf carriers have ties to their respective governments, it will be very hard for the U.S. legacies to come up with enough evidence to convince the White House to re-negotiate the open skies agreement.

The Gulf carriers have benefited immensely from the open skies agreement opened between the UAE and the U.S. back in 2002, as they control the majority of the market between the U.S. and the Middle East, a region mostly ignored by U.S. carriers. The gulf carriers have brought luxurious amenities, a high level of service along with low fares to woo over American travelers. The U.S. legacies, not known for luxurious amenities, have struggled to compete with the gulf carriers. With the gulf carriers continuing to expand in the U.S, the U.S. legacies feel extremely threatened and are aiming to end the gulf carriers’ expansion in the U.S. through a change in the open skies agreement. Instead of trying to compete with the gulf carriers, the U.S. legacies are asking the U.S. government to re-negotiate the open skies agreement so as to limit the expansion of the gulf carriers in the U.S. However, the U.S. legacies are facing considerable opposition from U.S. companies and organizations.

Boeing, FedEx, and various other aviation companies and organizations are now coming out against the U.S. legacies attempts to hinder the expansion of the gulf carriers in the U.S. This means that the U.S. legacies will have an even tougher time convincing the White House to re-negotiate the open skies agreement. Boeing has received billions of dollars worth of aircraft orders from the gulf carriers who have recently embarked on a buying spree, ordering hundreds of wide body aircraft. The commercial aviation sector of Boeing has been one of the bright spots in the U.S. economy supporting thousands of manufacturing jobs. The White House in no way would want to tamper with that success. JetBlue, who has a codeshare agreement with Emirates, has also come out against the U.S. legacies push to change the open skies agreement with the gulf carriers.

The White House is most likely not going to re-negotiate the open skies agreement with the UAE and Qatar for various reasons. First of all the U.S. has benefited greatly from the new flights from the gulf carriers, which has boosted tourism. The presence of Boeing, which employees thousands of manufacturers in the U.S. (something the White House would love to keep), JetBlue, and others as opponents to the re-negotiation of the open skies agreement with the UAE and Qatar also eases the White House's potential decision to not re-negotiate the open skies agreement. The economic benefits of the gulf carriers’ presence in the United States, the presence of American companies as opponents to the U.S. legacies, and the absence of evidence of wrongdoing against the gulf carriers will be too much for the U.S. legacies to overcome.